Why have income protection insurance?
There may be benefits you haven’t considered yet. We highlight seven important income protection benefits here.
1. It ensures your income continues even if you can’t work
None of us like to dwell on the thought that we could suffer a serious illness or injury. But every week thousands of Australians find their lives unexpectedly turned upside down because of a health issue.
If you have income protection insurance you could continue to receive up to 70 per cent of your regular income, though you cannot work.
That means you can focus on getting better rather than worrying about how you’re going to cover bills such as the mortgage, school fees, groceries, healthcare or other outgoings.
2. Income protection insurance can be customised
An income protection policy purchased from an insurer (as opposed to income protection provided by many super funds) can be adjusted to your individual circumstances.
You can choose to pay a higher premium so your policy starts paying out two weeks after you make a successful claim, or opt to reduce your premiums by extending this period. Under some policies, you can stretch this period to two years.
Likewise, you can select a policy that will pay a benefit for one, two or five years. Or one that could provide a monthly benefit until age 65, provided you are still unable to work.
You can opt for a stepped policy, where your premiums start out cheaper when you’re younger and rise as you age. With this option, premiums are recalculated based on your age on the anniversary of your policy each year. Or a level policy, where the premiums will be based on your age at the time you took out the cover.
In short, you have plenty of scope to tailor your policy to suit the amount of cover you want at a price you can afford.
3. You may be able to use income protection insurance to care for a sick child
Not only can you customise your income protection policy, you can also opt for extra features. One of the features that may be available is commonly called Family Care Cover.
Parents whose child suffers a serious accident or illness may need to take time off to care for them full-time.
But, because the parent remains in good health and capable of earning an income, they usually cannot make a claim against any of their insurance policies.
If financial assistance is available from the government, it’s unlikely to be enough to cover even the standard expenses, let alone added medical bills. (The current carer allowance paid to those looking after someone with a serious illness is $124.70 a fortnight.)
Often a parent will choose to take time out from their job or business to support their child and worry about financial consequences later.
If you have Family Care Cover you will have less financial worry because you could be paid a monthly benefit.
This benefit is paid for a period when the parent(s) stop working in their regular occupation to care for a dependent child too ill or injured to attend school or childcare. Waiting periods and maximum cover periods usually apply – check the policy terms for details.
4. Your income protection premium may be tax-deductible
Premiums for insurance on things such as your house are generally not tax deductible.
Even other forms of personal insurance, such as life cover, TPD (total and permanent disability) and trauma insurance that can prevent people becoming a burden on the welfare system are generally not tax deductible.
But premiums for an income protection insurance policy paid directly by you (that is, one not taken out through superannuation) may be tax-deductible, depending on the types of benefits covered.
5. You may be covered for redundancy
If you suspect you’d struggle to keep up with your mortgage, personal loan, car or credit-card repayments for a few months after being made involuntarily redundant then it’s worth considering covering yourself against this.
Depending on the type of policy you have, it pays a monthly benefit while you remain unemployed but may last for a set period, for example, three months.
6. Making a claim is straightforward
Insurers aim to make the claim process as smooth as possible.
If you’re out of work due to illness or injury, contact your insurer to inform them of the situation. Then it’s typically just a matter of sorting out the paperwork (a claim form, a doctor’s report and privacy statement) and providing some supporting information about your income.
7. It helps your life get back to normal quicker
Being out of work for even a short period can have serious long-term negative consequences for most people. The family home may need to be sold, retirement plans delayed, children sent to different schools, high-interest loans taken out to cover urgent bills, or bankruptcy declared.
It can also take years for things to get back to normal again. By taking out income protection insurance, you’re not only helping ensure you and your family will be OK while you’re out of action, you’re also maximising the chance of everything quickly going back to the way it used to be once you’ve recovered.